Self-Directed IRA Expert: Horizon Trust BlogApril 20, 2022by horizontrust0The Nine Best Investments During Inflation to Protect Your Wealth and IRA

With inflation roaring like a lion, you might be worried about the status of your purchasing power amid rising prices, just like everyone else. 

However, it’s not just the rapid acceleration of costs for goods and services in the short term causing anxiety. Investment-minded people want to know how their assets are affected today, tomorrow, and when retirement rolls around. 

So what are the best inflation investments to protect your IRA? 

How Can I Stop Inflation From Harming My IRA?

 

One of the trickiest parts of investing is getting the most out of long-term investments like bonds. While the nominal dollar amount accrued from long-term yields may appear greater than what you put in, inflation and taxes could make your bonds worth less. 

However, whether you are in a period of high inflation or not, it’s not a bad idea to pad your portfolio with a few inflation investments and hedges to protect your wealth. 

One of the smartest ways to insulate yourself against inflation and volatility is to transition to a self-directed individual retirement account (SDIRA). Here’s the snapshot:

  • An SDIRA is a specific type of IRA that’s managed by the account owner.
  • Like the popular Roth IRA, the SDIRA allows you to save for retirement on a tax-advantaged basis.
  • Even the contribution limits are the same. The only difference is reflected in the types of assets you’re adding in your account.

The biggest benefit of an SDIRA is the freedom, control, and flexibility you gain over your assets. SDIRA holders can invest in everything from Bitcoin to precious metals, which make great inflation hedges. 

To overcome those rough patches, you can even act in real-time by monitoring factors like current consumer prices and interest rates to pivot your IRA toward inflation investment. 

With this in mind, it’s important for all investors concerned about inflation to switch to an SDIRA. However, that’s only half the battle. Now, you need to switch up your investment strategy to protect your assets from inflation using any of these nine investments. 

What to Invest in During Inflation? 

 

Generally, when investing for inflation, you don’t need to abandon your dollars altogether. Mainly, you should diversify your portfolio and invest in hard assets that will shield your wealth from any losses you would incur from just holding onto a straight savings account. 

Here are nine of the best inflation investments to help you protect your wealth. 

1. Gold

 

Gold is considered a good long-term inflation hedge because it has intrinsic value, and its value is often driven by investors. So if inflation is viewed as an existential threat to the stock market, gold will more often than not receive a boost.

However, gold tends to perform very poorly in the short term, and stocks tend to outperform gold over the long run of 3 to 1. On the other hand, gold prices tend to peak during very weak economic times. For example, gold’s price hit its highest mark in September 2011 after a bull run following the recession and in August 2020 in the midst of economic uncertainty. 

For this reason, hold more gold during less certain economic times and keep gold in your portfolio to shield against inflation and other factors over the long term. 

2. Cryptocurrency

 

Bitcoin is often referred to as digital gold, and many are turning to crypto as an inflation hedge overall. However, the performance of cryptocurrency as an inflation hedge remains to be seen, as prices are often tied to the health of the overall market.

On the other hand, many people are attracted to cryptocurrencies like Bitcoin as a sound currency, making it a valuable inflation head moving forward. Investing your self-directed IRA in cryptocurrency may be high-risk but a high-reward investment. 

3. Commodities

 

If you’re looking for a classic high-yield option, commodities are considered hard to beat. They have historically produced superior returns. However, this is one of the more volatile asset classes. The biggest benefit of commodities investing is that it will hedge against a decline in the base currency.

It helps to understand a little bit about how commodity prices work in the market before committing to this option. Commodities prices are typically influenced by supply and demand. 

This is why you’ll see prices swing around so wildly. What’s more, prices of individual commodities can vary wildly from the rest of the market simply based on unique situations. 

For instance, a crop with a large harvest may drop in value during a particular year. However, droughts or storms can drive up prices of that same crop in a different year. This can apply to everything from grains to natural gas.

So if you’re looking to back your wealth with hard assets, commodities are a great option to start. 

4. REITs

 

Also known as real estate investment trusts, REITs provide everyday investors with opportunities to invest in properties that they would not have access to under other circumstances. REITs tend to post consistent gains with dividend yields that are higher than S&P 500 index averages. 

REIT investors often like the liquidity of this asset in comparison to the illiquidity of actually buying tangible real estate. REIT shares can be bought and sold relatively easily. 

5. Investment Properties

 

Real estate is an asset class with deep, longstanding value and is a great compound interest investment. Everyone needs a place to live. This is why real estate is generally considered a stable long-term investment with natural protection against inflation. An investment property allows you to earn rental income today with a fixed rate while building equity in what is very likely an appreciating asset.

6. Short-Term Bonds

 

Short-term bonds generally yield higher interest money than money markets. A short-term bond is set to mature in one to four years. 

At maturity, the issuer will either pay off the bond or pay back your principal investment. If you’re directing yourself toward short-term bonds, Inflation-Protected Securities (TIPS) should be considered excellent protection against inflation. 

TIPS will increase with inflation while decreasing with deflation based on the Consumer Price Index. Investors are paid either the adjusted or original principal when TIPS mature, based on which is greater. TIPS pay interest twice annually using a fixed rate.

7. Energy Stocks

 

Inflation has propelled energy stocks to incredible gains. This asset operates strictly on a supply-and-demand basis. While crude and fuel prices continue to rise in the face of rising demand with limited supply expansion, alternative energy stocks are also gaining in value for all the same reasons. 

8. Stocks

 

Stock performance generally outpaces inflation. If you’re looking forward over 10, 20, or 30 years, it’s reasonable to expect stocks to beat inflation when compared to other options. Stocks also tend to surpass other assets. Of course, performance hinges on many different factors that cannot be predicted. 

9. Collectibles or Other Alternative Investments

 

Art, NFTs, baseball cards, jewelry, gems, and other collectibles can be interesting. Investing in collectibles and similar investments will always be part faith, part fun, and part savvy. 

The truth is that collectibles tend to have lower returns than stock market index funds, money market accounts, and bond funds. However, there’s always the potential for a wildcard windfall that leaves you with a nice return when lightning strikes. 

Remember that the twin factors of “rarity” and “appeal” are what will help you beat inflation with your tangible assets at auction. 

It’s Not Too Late to Find the Best Investments for Inflation

 

You can’t hide from inflation. However, you can sometimes run from it by outpacing it with some smart investments. An option like the SDIRA gives investors more control over how they hedge inflation by opening up possibilities for investing in multiple asset classes.

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